E commerce

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CHAPTER 2
E-commerce Fundamentals

Dave Chaffey, E-Business and E-Commerce Management, 3rd Edition © Marketing Insights Ltd 2007

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LEARNING OUTCOMES
 Evaluate changes in business relationships between
organizations and their customers enabled by e-
commerce
 Identify the main business and marketplace models for
electronic communications and trading
 Describe different revenue models and transaction
mechanisms available through online services.


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MANAGEMENT ISSUES
 What are the implications of changes in marketplace
structures for how we trade with customers and other
partners?
 Which business models and revenue models should we
consider in order to exploit the Internet?
 What will be the importance of online intermediaries
and marketplace hubs to our business and what actions
should we take to partner these intermediaries?


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E-COMMERCE ENVIRONMENT
 Needs of customers
 Local and international economic conditions

 Legislation

 Technological innovations


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Figure 2.1 The environment in which e-business services are provided


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LOCAL CONDITIONS


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ENVIRONMENT CONSTRAINTS AND
OPPORTUNITIES
 Customers – which services are they offering via their web site that your
organization could support them in?
 Competitors – need to be benchmarked in order to review the online services they
are offering – do they have a competitive advantage?
 Intermediaries – are new or existing intermediaries offering products or services
from your competitors while you are not represented?
 Suppliers – are suppliers offering different methods of procurement to competitors
that give them a competitive advantage?

 Macro-environment
 Society – what is the ethical and moral consensus on holding personal information?
 Country specific, international legal – what are the local and global legal
constraints for example on holding personal information, or taxation rules on sale of
goods?
 Country specific, international economic – what are the economic constraints of
operating within a country or global constraints?
 Technology – what new technologies are emerging by which to deliver online
services such as interactive digital TV and mobile phone-based access?


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LACK OF PRIVACY = LACK OF
SALES
“Consumer privacy apprehensions continue to
plague the Web. These fears will hold back
roughly $15 billion in e-commerce revenue.”
-Forrester Research, September
2001
“Privacy and security concerns could cost online
sellers almost $25 billion by 2006.”
-Jupiter Research, May 2002
“Online retail sales could be 25% higher by 2006 if
consumer’s fears about privacy and security were
addressed.”
-Jupiter Research, 2002


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B2B and B2C interactions between an organization, its suppliers and its
Figure 2.2
customers

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B2B AND B2C CHARACTERISTICS
Characteristic B2C B2B

Proportion of adopters Low to medium High to very high
with access

Complexity of buying Relatively simple – More complex – buying
decisions individual and influencers process involves users,
specifiers, buyers, etc.

Channel Relatively simple – direct More complex, direct or
or from retailer via wholesaler, agent or
distributor

Purchasing characteristics Low value, high volume or Similar volume/value.
high value, low volume. May be high Involvement.
May be high involvement Repeat orders (rebuys)
more common

Product characteristic Often standardized items Standardized items or
bespoke for sale


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Marketplace channel structures

Disintermediation of a consumer distribution channel showing
Figure 2.3
(a) the original situation, (b) disintermediation omitting the wholesaler, and
(c) disintermediation omitting both wholesaler and retailer

MARKETPLACE CHANNEL
Slide 2.12

STRUCTURES

 Describes the way a manufacturer delivers
products and services to its customers


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VAUXHALL


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Figure 2.4 From original situation (a) to disintermediation (b) and reintermediation (c)


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REINTERMEDIATION
 Creation of a new intermediary
 Example:
 B&Q www.diy.com
 Opodo www.opodo.com
 Boots www.wellbeing.com www.handbag.com
 Ford, Daimler (www.covisint.com)
 Partnering with existing intermediary – Mortgage
broker Charcol and Freeserve


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REINTERMEDIATION


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ONLINE INTERMEDIARIES
 Directories
 Search Engines

 Malls

 Virtual resellers

 Financial Intermediaries

 Forums, fan clubs and user groups

 Evaluators


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Yahoo! Shopping Australia, a price comparison site based on the
Figure 2.6
Kelkoo.com shopping comparison technology (http://shopping.yahoo.com.au)

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BLOGS
 Give an easy method of regularly publishing web
pages, e.g. online journals, diaries or event listing
 Include feedback or comments


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Figure 2.5 Dave Chaffey’s blog site (www.davechaffey.com)


IMPORTANCE OF MULTI-
Slide 2.21

CHANNEL MARKETPLACE
MODELS
 Customer journey – modern multi-channel
behavior as consumers use different media
 Offline
 Mixed-mode
 Online


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Figure 2.7Example channel chain map for consumers selecting an estate agent
to sell their property

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Meta services

Search engines
Portal
Directories
‘A gateway to
information News aggregators
resources and
MR aggregators
services’
Comparers

Exchanges

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TYPES OF PORTAL
Type of portal Characteristics Example

Access portal Associated with ISP Wanadoo (www.wanadoo.com) and now (www.orange.co.uk)
AOL (www.aol.com)

Horizontal or Range of services: search engines, directories, news recruitment, personal Yahoo! (www.yahoo.com)
functional portal information management, shopping, etc. MSN (www.msn.com)
Google (www.google.com) for which a long period just focused on
search.

Vertical A vertical portal covers a particular market such as construction with news Construction Plus (www.constructionplus.co.uk)
and other services. Chem Industry
(www.chemindustry.com)
Barbour Index for B2B resources
(www.barbour-index.com)
E-consultancy
(www.e-consultancy.com)
Focuses on e-business resources

Media portal Main focus is on consumer or business news or entertainment. BBC (www.bbc.co.uk)
Guardian (www.guardian.co.uk)
ITWeek (www.itweek.co.uk)

Geographical May be:
(Region, country, •horizontal •Google country versions
local) •vertical •Yahoo! country and city versions
•Craigslist (www.craigslist.com)
•Countyweb (www.countyweb.com)

Marketplace May be: EC21
•Horizontal (www.ec21.com)
•Vertical eBay (www.eBay.com)
•Geographical

Search portal Main focus is on Search Google (www.google.com)
Ask Jeeves (www.ask.com)

Media type May be: BBC (www.bbc.co.uk)
•Voice Silicon (www.silicon.com)
•Video
Delivered by streaming media or downloads of files


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ONLINE REPRESENTATION
Place of Examples of sites
purchase
A. Seller- Vendor sites, i.e. home site of organization selling products,
controlled e.g. www.dell.com.

B. Seller-oriented Intermediaries controlled by third parties to the seller such as
distributors and agents, e.g. Opodo (www.opodo.com)
represents the main air carriers

C. Neutral Intermediaries not controlled by buyer’s industry, e.g. EC21
(www.ec21.com).
Product-specific search engines, e.g. CNET
(www.computer.com)
Comparison sites, e.g. Barclay Square/Shopsmart
(www.barclaysquare.com)
Auction space, e.g. eBay (www.ebay.com)
D. Buyer-oriented Intermediaries controlled by buyers, e.g. Covisint used to
represent the major motor manufacturers
(www.covisint.com) although they now don’t use a
single marketplace, but each manufacturer uses technology
to access its suppliers direct.
Purchasing agents and aggregators
E. Buyer- Web site procurement posting on company’s own site, e.g. GE
controlled Trading Process Network (www.tpn.geis.com

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SELLER-ORIENTED- OPODO.CO.UK


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BUYER-ORIENTED-COVISINT.COM


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Figure 2.8 Variations in the location and scale of trading on e-commerce sites


ARRANGEMENTS FOR
Slide 2.29

TRANSACTIONS
Commercial (trading) mechanism Online transaction mechanism of Nunes et al. (2000)

1. Negotiated deal Negotiation – bargaining between single seller and buyer. Continuous
Example: can use similar mechanism to auction replenishment – ongoing fulfilment of orders under pre-set terms
as on Commerce One (www.commerceone.net)

2. Brokered deal Achieved through online intermediaries offering auction and pure markets
Example: intermediaries such as screentrade online
(www.screentrade.co.uk)

3. Auction Seller auction – buyers’ bids determine final price of sellers’ offerings. Buyer
Example: C2C: E-bay (www.ebay.com) B2B: auction – buyers request prices from multiple sellers. Reverse – buyers post
Industry to Industry desired price for seller acceptance
(http://business.ebay.co.uk/)

4. Fixed-price sale Static call – online catalogue with fixed prices. Dynamic call – online
Example: all e-tailers catalogue with continuously updated prices and features

5. Pure markets Spot – buyers’ and sellers’ bids clear instantly
Example: electronic share dealing

6. Barter Barter – buyers and sellers exchange goods. According to the International
Example: www.intagio.com and Reciprocal Trade Association (www.irta.com ) barter trade was over $9
www.bartercard.co.uk billion in 2002.


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Figure 2.9 Priceline Hong Kong service (www.priceline.com.hk)


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BUSINESS MODEL
Timmers (1999) defines a ‘business model’ as:
An architecture for product, service and information
flows, including a description of the various business
actors and their roles; and a description of the potential
benefits for the various business actors; and a
description of the sources of revenue.


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BUSINESS MODELS ON THE WEB
 E-shop
 E-procurement

 E-malls

 E-auctions

 Virtual communities

 Collaboration platforms

 Third-party marketplace

 Value-chain service providers

 Information brokerage

 Trust and other services


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Figure 2.10 Alternative perspectives on business models


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REVENUE MODELS – PUBLISHER
EXAMPLE
1. Subscription access to content.
2. Pay-per-view access.
3. CPM on site display advertising.
4. CPC advertising on site.
5. Sponsorship of site sections, content or widgets.
6. Affiliate revenue (CPA or CPC).
7. Subscriber data access for e-mail marketing.
8. Access to customers for research purposes.


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Figure 2.11 Alex Tew’s Million Dollar Home Page (www.milliondollarhomepage.com)


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Figure 2.13 www.firebox.com


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